Jetro chief sets sights on a more investable Japan

With the Abe government aiming to increase Japan's stock of FDI to Y35,000bn by 2020, business and immigration reforms are a key pillar of its strategy to improve the business environment for foreign investors, as Hiroyuki Ishige, CEO of the Japan External Trade Organization, tells Jacopo Dettoni.

Q: How do you assess the current investment climate in Japan?

A: FDI has been growing, especially since prime minister Shinzo Abe came in power [in 2012]. He announced the growth strategy in June 2013. Since then we have experienced growth [in FDI inflows].

The Japan External Trade Organization [Jetro] started off in 2003, and we have supported a total of 15,000 investment projects since then, which resulted in 1500 projects actually materialising across the country. We have almost tripled the number of investment promotion staff – to 180 – over the past two years as this area has become an important policy target for us.

Q: Mr Abe aims to increase the stock of accumulated FDI to Y35,000bn [$310bn] by 2020, from Y26,700bn in 2016. How are you planning to achieve it?

A: In order to increase FDI we have to meet four conditions: a better macroeconomic conjuncture; improvement of the business environment surrounding foreign companies; delivering information about an improving business environment; and strengthening investment promotion organisations such as Jetro.

Since Mr Abe took office, the macroeconomic environment has improved substantially, at least in his first two years in office. Last year, the economy didn’t improve too much, but we hope that the recovery continues. Mr Abe is trying to trigger a virtuous circle: increase wages, which will drive an increase in consumption, which increases investment and FDI, which eventually creates GDP growth, drives further salary growth and so on. We are still in the process [of developing this].

Q: How is this translating into a better business environment for foreign investors?

A: The business environment surrounding local and foreign companies has improved as this administration carried out substantial regulatory reforms: among others, agriculture reform, participation in the [proposed] Trans-Pacific Partnership [TPP] deal, fundamental reforms in the retail power market, and on the development of new medicines and medical equipment. It also pushed through a corporate governance reform requiring [listed] companies to have at least two independent directors on their boards.

Now there is a Japanese green card system under assessment, potentially extending to researchers, managers and other highly skilled labour. A political decision has already been taken on this, and we expect it to be in place in 2017.

Q: Are you satisfied with this set of reforms?

A: As Jetro, we are not yet satisfied. Regulatory reforms should be pursued endlessly – it’s a never-ending story. Japan has to compete with our neighbours such as China, South Korea, Hong Kong, Singapore and Taiwan. When foreign companies invest in Japan, they evaluate investment conditions in all these countries so Japan has to be the most business-friendly country in the world, or at least in east Asia.

Q: What are the main priorities that have yet to be addressed?

A: Regarding the green card system, the possibility to extend it to maids and nannies has not yet been included. On a more general level, only 2% of the Japanese population speaks English, although this administration is already assisting people in improving their English. At the same time, a new package of reforms is due by the end of 2016.

Q: How are you trying to communicate these ongoing improvements to the international business community?

A: Mr Abe has given six speeches at investment forums in foreign countries, something that has not been done by any other prime minister. At the same time, Jetro has organised 120 investment seminars in the past 18 months. People abroad don’t know Japan. They don't have appetite for investment in the country; they don’t know that things have been changing.

Q: What are the opportunities for foreign investors in Japan today?

A: First and foremost, R&D centres. A significant number of foreign companies have already decided to establish an R&D centre in Japan. They can easily find good partners in local universities and companies, as well as hire good researchers. With 10.5 researchers per 1000 inhabitants, Japan boasts the second highest ratio in the world. Besides, [Japan's] R&D expenditure is the highest in the world, with 3.4% of GDP per year, and Japan is second only to the US for number of Nobel laureates in natural sciences [from 2000 to 2016].

In addition to that, Japanese women are very demanding consumers, which is why companies such as Johnson & Johnson release new items onto the Japanese market first. And products developed in Japan can now be sold to countries elsewhere in the region because their levels of income have grown significantly and they can afford products from Japan.

At the same time, Japan offers foreign companies high levels of intellectual property protection, which is a significant factor compared with neighbouring countries.

Q: Is there any specific incentive to cover the risks related to R&D research?

A: We are offering grants for up to Y1bn for companies doing experimental research and establishing R&D centres, and have already backed 11 projects.

Q: What other sectors offer opportunities for foreign investors?

A: Medicine and medical equipment is another sector with opportunities for foreign investors. Japan has an ageing population, which means a huge demand for the industry. And the government has liberalised the development of new drugs, making approval periods shorter.

Tourism-related sectors also have potential. We have many tourists, with Chinese and Singaporean companies servicing visitors from their countries. For hotels, travel agents, finance and other related services, it’s a very promising sector.

Q: Japan is perceived as an expensive place to live and do business in. Is this hampering its FDI potential?

A: This is an obsolete idea. Tokyo’s cost comparison with cities such as Hong Kong, Singapore and Shanghai is very competitive, which means that other second-tier cities are even more competitive. Foreigners tend to see Japan as expensive, but costs are not that high, and since deregulation was introduced, the business environment surrounding foreign companies has dramatically changed.

Q: How can foreign investors bridge the culture gap that is also perceived as a challenge to develop partnerships with local businesses?

A: It’s not easy, but if Japanese companies become more familiar with foreign peers, then cultural differences in fields such as corporate governance will disappear. Our SMEs have cutting-edge technology, but they are unfamiliar with foreign companies – this will gradually disappear moving forward.

The TPP agreement [could give] them a very important chance to change their mindset. Potentially their market [would be] not only Japan but a market of 3 billion [on both sides of the Pacific Ocean]. I understand TPP is difficult to ratify [in the US], but I think it will [come into effect]. (NB: This interview was given before Donald Trump won the US presidential election.)

Q: Tokyo is hosting the 2020 Olympic games. Is this another chance for Jetro to promote the country’s business proposition abroad?

A: This is a great chance to disseminate information regarding Japan. We are trying to deliver the message and the Olympics offer a great chance for the government and companies to share their thinking and to spread the word. The UK has been very successful in doing this with the games in London; we want to do the same.

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